Mizuho Global Targets $1.3 Billion for Hedge Funds From Pensions

Mizuho Global Alternative has seen increased demand from Japanese pensions, striving to fund rising payouts in an aging society, after AIJ was found to have allegedly lost more than $1 billion of mostly pension money by offering hedge-fund strategies. Photographer: Tomohiro Ohsumi/Bloomberg

The wholly owned unit of Mizuho Corporate Bank Ltd.
increased assets to 70 billion yen at the end of June, from 40
billion yen in March, said Chief Executive Office Manabu Ando.
The company is currently offering about 10 to 20 overseas hedge
funds to Japan’s corporate pensions that manage more than 70
trillion yen, he said, declining to name the funds.

Mizuho Global Alternative has seen increased demand from
Japanese pensions, striving to fund rising payouts in an aging
society, after AIJ was found to have allegedly lost more than $1
billion of mostly pension money by offering hedge-fund
strategies. Twenty-one percent of retirement funds plan to boost
alternative investments in the fiscal year started April 1, the
most among 10 asset classes, according to JPMorgan Chase & Co.

“The AIJ incident became a trigger for many funds to
review how they invest in hedge funds,” Ando, 52, said in an
interview in Tokyo. “Japanese pensions have reached that point
where payouts are exceeding contributions and they know that
sticking to traditional assets will only lead to a deteriorating
portfolio.”

The Eurekahedge Hedge Fund Index, which tracks more than
2,700 funds globally, has beaten the Nikkei 225 Stock Average
every year since 2006. Japanese corporate and government pension
assets managed by investment companies fell 4.5 percent to 79
trillion yen last fiscal year as payouts exceeded contributions,
said the Japan Pensions Industry Database.

World’s No. 2

Japanese pensions oversee $3.36 trillion, the world’s
second-largest pool of retirement assets after the U.S.,
according to Towers Watson & Co. The funds, which have
traditionally invested mainly in bonds, have been expanding
their strategies to maintain steady returns amid Europe’s
sovereign debt crisis and a global economic slowdown.

Japan’s population fell by a record last year, underlining
the struggle to boost growth and rein in soaring welfare costs
in the world’s most rapidly aging society.

“With interest rates so low and volatility in stocks so
high amid Europe’s sovereign debt crisis, alternative
investments are becoming increasingly important,” Chief
Investment Officer Shin Kubo said in the interview. “AIJ was a
short-term negative event, but it did become a wake-up call in
the long run for pensions to review their strategies.”

AIJ President Kazuhiko Asakawa was among four people
arrested on suspicion of fraud last month. They allegedly
defrauded pension funds in Tokyo and Nagano Prefecture of about
7 billion yen, according to the Tokyo Metropolitan Police
Department.

Multi Strategy

Mizuho Global Alternative currently offers macro, equity
long-short and multi-strategy hedge funds mostly from the U.S.,
Ando said. It screens about 1,000 hedge funds worldwide based on
the three strategies and then shortlists them to about 30,
eventually leaving them with 10 to 20 funds “qualified” to be
introduced to Japanese clients, he said. Mizuho is focusing on
funds with more than 2 years of track record and with assets
under management of more than $500 million.

Mizuho is also looking to offer hedge funds that will
become an alternative to pensions’ bond investments, such as
global macro funds or credit funds, Ando said. The company wants
to hire more staff, including fund analysts and product
managers, as demand increases, he said.

“We consider ourselves a trading company, where we import
products that we think are adequate as a gatekeeper and that
don’t exist in Japan,” Ando said. “There are many global hedge
funds out there that have yet to be known in Japan, where the
amount of investable money still remains pretty significant.”